Practical approach to peak-load pricing
The article deals first with areas of economic theory that do not reflect practicality and the realities of the electric utility industry; secondly, with a practical philosophy regarding peak-load or time-of-use pricing; and thirdly, with a methodology for peak-load costing and rate design. Four specific areas of economic theory covered are: optimum allocation of sources; adjustment of marginal costs to equal revenue requirements; loss-of-load probability; and what is the correct marginal cost. The author is critical of some efforts to apply pure economic theory on marginal costs to the redesign of electric utility rates, but he does recognize the necessity of addressing the issue of peak-load or time-of-day pricing. Such pricing can better reflect cost of service and result in a more efficient allocation of resources, he says. He concludes that optimum allocation of resources is not justification for marginal cost pricing of electricity. After discussing 6 criteria of the elements of practical peak-load pricing, a methodology for costing and rate design is presented. (MCW)
- Research Organization:
- Wisconsin Public Service Corp., Green Bay, WI
- OSTI ID:
- 7339759
- Journal Information:
- Public Util. Fortn.; (United States), Journal Name: Public Util. Fortn.; (United States) Vol. 98:6; ISSN PUFNA
- Country of Publication:
- United States
- Language:
- English
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